Thermo Fisher Scientific Inc. (TMO) Earnings Call Transcript & Summary

Amazing. Thank you, everyone, for joining us Day 2 of Morgan Stanley's Global Healthcare Conference. I'm Kallum Titchmarsh. I run the Life Science Tools and Diagnostics team. Really pleased today to be joined by Marc Casper, Thermo's CEO. We have a lot to discuss, I think, Marc, today.

But maybe we can just kick off with a state of the union. We've seen, obviously, growing momentum throughout 2026 following perhaps a more dynamic few years. Q2 performance obviously came in ahead of guidance and obviously, the strongest growth we saw organically since 2021. So before we dive into each of the end markets and the segments specifically, how do you see the business today? And how has that environment evolved from your vantage point?

So Kallum, thanks for having us, and I'm joined today with two colleagues from Thermo Fisher, Raf Tejada, who is responsible for Investor Relations; and Sandy Pound, our Chief Communications Officer. When I think about 2026, it's setting up to be really an outstanding year. And it is a combination of improving end markets in the direction that we've expected to see that progression and very strong operational performance by the company. So as we exited the second quarter, it was good to be back to 5% organic growth, and we grew our EPS by 13% in the quarter. We're able to raise our outlook for the full year and now expect organic growth to be about 4% this year. And actually progressing nicely in that range that we said it would happen getting to a period over this year and next range from 3% to 6%, and you're seeing it progress higher in the range. I'm sure we'll delve into a lot of the different details. But if I'd say one of the things as I reflect on the first quarter or the first half of the year, I should say, is the strength of the customer relationships that we built is really paying off in a really strong way. The acquisitions that we've done are performing well because customers want to adopt the technologies that we've added. So it's a super exciting time in our industry and an even more exciting time at Thermo Fisher.

Amazing. Maybe just turning to pharma and biotech, I think demand from pharma remained pretty strong. And more recently, we've started to see improvement in the earlier stage kind of biotech funding, too. And I think that's starting to show up as well in the revenue base. Can you just give us a perspective on the health of that end market today of both and what you're hearing from customers? And what is driving that improving trajectory?

Yes. So when I think about pharma and biotech, it's the largest customer set that we serve. It's about 60% of our revenue. We grew mid-single digits in the quarter and that Q2 has followed the progression that we've now seen for several quarters, which each quarter is actually a little bit stronger in terms of the organic growth versus the prior quarter. So you're seeing it strengthening. And the business is performing in a logical fashion. So what we're seeing is the pharmaceutical customers are quite positive. They're building their pipelines. They're excited about the science that's happening now and the understanding that they have the benefits of AI to drive stronger impact on the returns within drug development, and that is definitely fueling an investment cycle. And at the same point in time, you're seeing biotech also in a much better part of the cycle simply because funding is improving, the confidence has been improving and you're seeing the spending. And we saw broad strength. When I think about Q2, you saw strength in clinical research, you saw strength in our research and safety market channel, you saw a very strong performance in bioproduction, all driving very positive growth.

And how should we think about that lag, I guess, between biotech getting funded to them actually spending money and for them generating revenue for you? Because it feels like those funding dollars have sustained themselves pretty well throughout the year. So how are you just thinking about that relationship between funding and revenue generation?

Yes. As our investors know, we spend an enormous amount of time as a management team with our customers. And if I think about in 2025, a lot of what the commentary you heard from us was the tone, the sentiment is improving. Even though funding wasn't super strong, it was improving, but the confidence from our customers and the emerging biotech companies really was picking up. You saw funding start to improve as 2025 progressed, has stepped up even further in 2026. The M&A that's happened in the industry has fueled an investment cycle from VC. You've seen IPOs. So you're seeing a much healthier end market. And that sentiment has now translated into spending, right? And it follows a logical pattern, right? And usually, when funding happens, it usually takes 2 to 3 quarters depending on the business for that funding to flow. Funding typically will first go into clinical research because that's ultimately how you get to your next milestone in terms of the next funding round. You've seen that in very strong authorizations growth in our clinical research business. You've also seen it in the strong revenue growth that we've been delivering. And now what you're starting to see as it progresses as those companies are now working on how do they refill their research pipelines, and you're starting to see that growth pick up first in our research and safety market channel, Fisher Scientific. That's the next natural thing to happen. You're starting to see lab spend go up. And then the next step you would see is kind of the high-tech reagent business would be the next part of the progression that you would expect to strengthen over the next couple of quarters.

We've had some quite exciting data intra-quarter on personalized mRNA cancer vaccines. Obviously, had been a market more broadly vaccines that were perhaps a bit softer post-COVID on that roll-off. So how are you thinking about the opportunity created from that? And just given the breadth of your capabilities across the drug development cycle, where can you play the most meaningful role?

Yes. So when you think about a significant event from a new approach for a therapy, it spurs a huge amount of interest, right? So it's -- in a certain respect, it's less about the Moderna and Merck specific spending in two important customers but more about the interest in the area, which then spurs a reinvestment cycle. And if you think about -- really, it is a therapy, I mean, less of the marketing, but effectively, it's to address an individual's specific cancer, and it really is very exciting. And what ultimately will be is that it will benefit patients, and that will then see capital flow to support that area. Just like it has in ADCs and some of the other areas that maybe 2 or 3 or 4 years ago, the industry was talking about being a positive, this is yet another leg to drive growth in the industry.

And just sticking with pharma and biotech, checks have suggested that we're starting to see increased activity around reshoring to the U.S. And I think a number of companies have spoken more proactively to it during the second quarter. That seems like it could be a multiyear investment cycle that you have opportunity to benefit from. So maybe just talk through how you're going to be participating in that trend and what you're seeing from those customer discussions today.

So Kallum, when I think about reshoring, it's worth delving into a little bit of the context on it. And it's all positive, but I think it's helpful to understand, right, which is today, certainly serving the U.S. a large proportion of medicines are made in Western Europe or made in Asia Pacific, depending generics, mostly in India, but a lot of the innovative medicines are made in Western Europe. And what you're seeing with the administration's policies is there's real economic benefits to produce in the United States and create more jobs and supply chain resiliency. And the activity that it's spurring is really in three different ways, right? To meet the U.S. government's requirements, you can sign CDMO contracts. You don't have to build a factory. You can just commit to U.S. production. And when you look at that, we've secured a number of large contracts for our capability to produce in the U.S. And in fact, in March of this year, President Trump visited our CDMO site in Cincinnati, one of the beneficiaries of those jobs moving back to the U.S., where we have a very high-tech facility in the oral solid dose category. And that's the first phase because in a way, factories exist, we're producing medicines, customer might have produced those medicines somewhere else. They sign a contract with us, we tech transfer and we start to create jobs, it creates more growth for us. The second area is expansions of existing facilities. And in that case, that happens next most quickly, if you will, which is they're buying equipment. They're moving medicines into the U.S. You'll see the onetime demand for that equipment. You'll see the onetime demand to stock labs or stock supplies. You're seeing activity pick up there, and that's probably more of a '27 time frame when it really steps up, that's kind of consistent with what we've been saying. And then the final one is the one where you see most of the announcements, most of the dollars is the brand-new facilities, the greenfields that are being built, they will have more onetime purchases, right? They will buy more equipment, they'll equip the labs. We will supply to Fisher Scientific, all of the labs, all of the inventory to get those facilities up and running. And that should be a '27, '28 type time frame in terms of when that plays out. When it's all said and done, we're still producing exact same amount of medicines, right? So it is a onetime benefit. It's sort of in a way, additive to how we've thought about our growth outlook. It's a good thing, and it will normalize over time. You're just starting to see it now, and we'll take it. And then ultimately, you get back to volume growth in the industry. So it should be a nice positive over the next couple of years.

That makes sense. Maybe just turning to aca/gov, started to see some signs of stabilization. It was a pretty dynamic period for that end market, particularly in the U.S. How would you characterize the health of that end market today? And what are you hearing from customers on the ground? And I guess more importantly, what do you think is needed to drive a more meaningful recovery here?

Yes. So we had a strong quarter in the second quarter in academic and government. We returned to low single-digit growth. We had strong growth in Europe. The U.S. returned to growth, slightly positive. China is still a headwind in terms of academic spending, but it was a better quarter, largely driven by the adoption of our high-end instrumentation in terms of innovation. Our chroma mass spec business did very well. You saw strong adoption there. The way that I see the market is funding has been okay, right, but anxiety has been high, right? And it's really, in a way, academic and government over long periods of time, spending just follows the flows of funding, right? And -- but over the 2025 time frame, there were so many pronouncements about changing or potentially changing policies, that customers got cautious. Our view in '26 is it's stabilizing, but it's still a muted market, but the funding is flowing. And our expectation is that will continue to progress, and it should return to growth in 2027 is the way I would think about it. But we'll take a good Q2 in terms of the performance that we had.

And then maybe just unpack a little regionally, what you're seeing in aca/gov, I think you briefly touched on it. But like what do you think is driving that difference in performance and perhaps the relative anxiety, I guess?

Yes. I think the anxiety is literally only a U.S. dynamic, right, in terms of it. In terms of the way I would think about -- we have very strong adoption of our technologies, particularly in our mass spectrometry category. And what you're seeing is Europe was even stronger because they don't have -- they have less of the sort of policy things that they're working through. The U.S. was positive. China continues to be muted as government has been quite restrained on spend in academic and government.

Maybe just implied in industrial. I think it was one of the stronger end markets in Q2. It seems that's improving on the up as well. What are you seeing from customers on the ground here? Would love as well a bit more color on the electron microscopy business. I think that -- and semis has been an interesting topic from our discussions with investors as well.

Right. So about 15% of our revenue is the industrial and applied markets. And when you look at the drivers of the mid-single-digit growth that we delivered in Q2, we actually had broad strength, right? And we had a very strong performance in our electron microscopy business. We saw chemical analysis return to growth and the research and safety market channel had a strong quarter. When I think about the individual drivers, chemical analysis, which is the smallest of our 3 instruments business, really is benefiting from two things: safety and security spend, things like radiation detectors, explosive detectors, things of that sort where we have deep expertise from a technological standpoint has returned to growth; and high commodity prices drives a lot of demand for spectroscopy instruments, and that's driven growth there as well. So that's that part of the business. Electron microscopy, which is a much bigger business, has got good momentum, really driven by semiconductor. We have a very leading set of technologies, an essential set of capabilities for the semiconductor industry, where if you are developing the next generation of a semiconductor or thinking about chiplets and some of the other technologies, you need the electron microscope to actually understand what's going on at the atomic level to make sure that you're developing the right product and you use our technologies more and more in the yield ramp of production, and you're seeing more automation that we have provided, so that you can literally take off of the fab and near line actually test what are the quality issues that might be in the factory, and that's allowed for a faster ramp of a new fab. So you're seeing very strong demand. And it's long-cycle business, meaning that our orders are far outstripping revenue, and that bodes well for the future in terms of growth in the semiconductor industry and the number of new fabs being built will continue to drive strength in that business. So strong technology business, very well respected by the customer base and business is performing at a good level.

Great. I want to hit on China. You obviously recently visited China, met with customers, key stakeholders there. What did you take away from the visit in terms of the environment on the ground and customer activity? And I guess, looking ahead, what do you see as the key drivers for spending to be again, more proactive and more speculative than perhaps it had been in the past?

Yes. So Kallum, when I think about China, one of the things as a company, we've been in China for over 40 years, right? And I've had the good fortune of working with our Chinese colleagues and our customers in the 25 years that I've been at the company. And I'm a regular visitor, meeting with customers, governments, our colleagues and just continuing to ensure that our business has a bright future there. Over the last few years, China has been a drag on the industry growth. And while our business generally has performed better than others, it's been a flattish to down type business. You saw our business return to growth in the second quarter. And when we talked about our mid- and long-term guidance, what we've said consistently is that China doesn't need to be a meaningful contributor to our growth for us to progress through the 3% to 6% range and then ultimately to the 7% plus range in 2028. And when I came away from my visit in August, which is my second trip of the year, actually came away more positive on China. And one of the trends that has really picked up in a way it's obvious, but actually hear it firsthand helps crystallize it, which is the innovative biotech industry that has been developed in China is really investing heavily in R&D, and they are looking to work with Western companies, right? They want to, in a way, derisk a licensing deal because effectively, if we're putting our name behind the product or technology, then the customer that might be licensing from them will understand that it works. If our clinical research team is running a trial, we're putting our brand about the quality of the information being generated. Those things are really quite valuable, and you're seeing our business return to growth. So I actually came away more bullish on China and believe that over time, it can return to be at least growing at the company average, if not better. So I'm quite encouraged about what the opportunity set is. I still think academic and government will be challenged there until the government has a different policy about fiscal spending, but I don't think that matters all that much.

Understood. Maybe just shifting from end markets to a few of the individual businesses. Let's maybe start with bioproduction been delivering really strong growth there, I think, outpacing that of the market from our data. What do you think is driving that outperformance? And how does the addition of that purification and filtration business from Solventum change the trajectory looking ahead?

Sure. So we have a strong bioproduction business, has had a very long track record of gaining market share, right? And the way that customers buy in the bioproduction segment, is a best-in-breed approach, meaning that they will optimize the various technologies to produce their medicine that gets the most cost-effective way to produce. Our growth has been driven by our leadership position in cell culture media and single-use technologies, where our technologies have been widely adopted and continue to drive adoption. We've had great strength in our DynaDrive single-use technology bioreactor, and that really is a very efficient way to produce medicines, and you're seeing the adoption. We have a rapidly growing purification business or resins business that we've had for many years. And we won many molecules years ago. When you win a molecule, it's an infinitesimal amount of revenue, right? It's a long journey, but you're seeing the benefit of the wins over the last 5 to 7 years, actually materializing into revenue growth. And then finally, a year ago, we just had -- we just celebrated our 1-year anniversary. We acquired the filtration business from Solventum. And the view there was great technology, didn't have strong commercial reach and that our customers were looking for a trusted partner to be able to support their filtration needs, and we've had very high level of customer interest, so -- in that business. So that acquisition is off to a good start. We're excited by that. It will now become part of our organic growth. We expect that business to continue to be a mid- to high single-digit growth business, which actually means it's a little bit of a drag on the organic growth of bioproduction sort of mathematically, but it's accretive to the company's organic growth. And over time, as we build the pipeline and expand capacity, it will become in line with actually the bioproduction growth as well. So -- it's a great business. It's performing well, and it will be highly accretive to our EPS. And -- so we have a really good business. And I would say that we're well positioned in the long term to continue to have strong growth.

And how do we think about, I guess, the timing of benefit from that fully integrated bioproduction portfolio that you have? Because I think it seems you get the benefit from when new molecules come online because now you have this broader suite. So maybe just help us understand the cadence of benefits there.